Pension Tax Deductions?
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RSTime
Posts: 95 Forumite
I semi-retired last year and started taking a smaller pension this year and will be paying lower rate tax. My pension is not being taxed at source. When I take my second pension I will be paying higher rate tax. How does tax work with pensions, I would rather be taxed at source than getting a big bill at the end of the year?
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Comments
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Are you also working? If so your normal tax code would be applied to your earnings and the pension would receive a BR (all at 20%) tax code, assuming your earnings are over £12,570. A similar thing would happen with any other pension.1
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RSTime said:I semi-retired last year and started taking a smaller pension this year and will be paying lower rate tax. My pension is not being taxed at source. When I take my second pension I will be paying higher rate tax. How does tax work with pensions, I would rather be taxed at source than getting a big bill at the end of the year?
Do you mean tax is due now but none is being deducted? Or simply that tax will be due in the future and none is being deducted at the moment (as none is currently due)?
How the tax is deducted when both pensions are in payment will vary slightly depending on how much each one is, particularly if both exceed your Personal Allowance rather than just one.
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RSTime said:I semi-retired last year and started taking a smaller pension this year and will be paying lower rate tax. My pension is not being taxed at source. When I take my second pension I will be paying higher rate tax. How does tax work with pensions, I would rather be taxed at source than getting a big bill at the end of the year?
You say you are not being taxed at source on the pension, has your tax code gone up on the income?1 -
I don't believe a pension provider would not be operating PAYE on a pension so more clarity needed on the pension not being taxed.
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I think op is actually self employed so liable overall but not on the PAYE on its own.1
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I have semi-retired and together with my current pension I am liable for tax, however no tax is not being deducted from my pension. I only started taking the pension on 6th April so will be declared for the first time on my next self-assessment.0
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RSTime said:I have semi-retired and together with my current pension I am liable for tax, however no tax is not being deducted from my pension. I only started taking the pension on 6th April so will be declared for the first time on my next self-assessment.
What normally happens is that after the first pension payment, HMRC will see that you have another income stream and they will adjust the tax codes on your income sources so that the correct overall amount of tax is collected.2 -
The best practice with both earned & pension income is that the codes should be applied as follows, the reason being that the earned income may cease abruptly due to stopping work but the pension income will continue. So state pension if being taken gets first bite of the £12570. Then any pensions get the next bite. Then earned income. You will need to ensure that HMRC are doing it in that order as they tend to do employment then pension not the other way. If you unfortunately suddenly get too ill to work you do not need to be having a battle with HMRC to get your tax sorted out.
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RSTime said:I have semi-retired and together with my current pension I am liable for tax, however no tax is not being deducted from my pension. I only started taking the pension on 6th April so will be declared for the first time on my next self-assessment.
If the latter then there is really nothing you need to do.1 -
badmemory said:The best practice with both earned & pension income is that the codes should be applied as follows, the reason being that the earned income may cease abruptly due to stopping work but the pension income will continue. So state pension if being taken gets first bite of the £12570. Then any pensions get the next bite. Then earned income. You will need to ensure that HMRC are doing it in that order as they tend to do employment then pension not the other way. If you unfortunately suddenly get too ill to work you do not need to be having a battle with HMRC to get your tax sorted out.0
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